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A Credit to Ourselves

A Credit to Ourselves

As I read about yet another financial institution reeling from the effects of the credit crunch, it's hard to understand why leaflets continue to drop through my door inviting me to take out a new credit card or loan and to 'free myself' of bills and debt.

What's happening to us? In the UK, consumers spent a record sum on credit and debit cards in the final quarter of 2007, with borrowers increasingly using plastic to pay their household expenses. The Association of Payment Clearing Services (Apacs), the body that represents lenders and credit card companies, says that £32.4 billion was spent on credit cards between October and December 2007, the second-highest sum in history. The figures indicate that as household expenses rise, people are using their credit cards to meet their monthly bills, the first sign of a spiral into debt.

In fact, rather than cutting back on credit cards during this bleak financial time, many of us are actually increasing our credit card spending. Perhaps, then, it is not surprising that a recent review by the Norwich and Peterborough Building Society found that, despite the financial strains that have been facing households, 50% of those surveyed had not changed their credit card spending habits at all.

Easy Credit?

The phrase 'easy credit' is an undoubted oxymoron in the face of the devastating effects that credit cards and heavy loans are having on the lives of so many of us. There is nothing easy about the increasing number of people who are finding their homes under threat as they struggle to pay off their cards while dealing with increased food, fuel and living costs.

There was a time when the phrase 'neither a borrower nor a lender be' was the full extent of many people's financial education.

So what's gone wrong? There was a time, not so long ago, when we saved in order to buy big-ticket items; laboriously putting away small sums of money over a period to buy that new TV, sofa or car. A time when the phrase 'neither a borrower nor a lender be' was the full extent of many people's financial education and the idea of being in debt was seen as a disgraceful state of affairs and one to be hidden at all costs.

But then came the credit cards; now an indispensable item in everyone's wallet, be they a cash-strapped student or a working professional. Credit card companies have encouraged us to buy today and pay tomorrow and, in the process, debt has now become a way of life. A hugely successful American export, 3.67 billion payment cards are now widely available around the world and, from Brazil to China, are bringing in rich rewards to their issuers. In March this year, Visa completed the largest stock offering in American history, while MasterCard has seen a rise of almost 500% in its shares since the company went public in 2006.

Credit vs. Responsibility

Newspaper columns and internet blogs carry raging debates about who is to blame for the financial mess in which many find themselves. Some lay the blame squarely at the door of financial institutions who have lent money without adequate due diligence or a real understanding of people's ability to pay back what they borrow.

They argue that aggressive marketing techniques targeting vulnerable consumers, such as students and those on low incomes, is akin to offering free whisky to an alcoholic and that credit card companies have acted irresponsibly in their quest for profits.

Others insist that individuals have to be held accountable for overspending on credit cards and taking out loans they knew they were unlikely to be able to repay. While no-one can necessarily predict a job loss, goes the argument on this side of the fence, many people who knew they were on low incomes still opted to take what was on offer without considering how they were going to pay for it in the long-term.

Some argue that aggressive marketing techniques targeting vulnerable consumers are akin to offering free whisky to an alcoholic.

Credit is convenient, quick and, at the time at least, painless. But while surely no-one can argue against the importance of credit when it comes to purchasing a house or growing a viable business; looking at where things are today, did we really never ask ourselves whether using our credit cards for expensive holidays, shopping sprees and (not entirely) necessary home improvements would one day be a problem? Can we really plead that instead of 'the devil made me do it', 'the cards made me do it'?

Stretching Beyond the Blanket

Unfortunately, the problem isn't confined to rich countries in the West, as a middle-income emerging economy like Turkey proves. 30 years ago, Turks held fewer than 10,000 credit cards; today the country has more than 38 million of them. A major cultural shift in that country has seen outstanding credit card debt balloon to almost $18 billion in 2007, six times the level five years earlier. As default rates rise sharply, more stories are heard of desperate card holders killing themselves or others.

Nazim Kaya, the president of Consumers Union, a Turkish advocacy group that helps those who fall into debt put it very eloquently when he said, "We did not listen to our ancestors' proverb. Stretch your leg only as far as your blanket.' "

As we read through that next credit application form that comes through our door, it may be wise to remember that we are responsible not only for the credit card but also for how using that card will impact on our family, career and reputation.

I am reminded of my father as he once watched me trying to do justice to a rather large buffet remarking mildly, "Just because it's there doesn't mean you have to eat it". The big lesson from the credit crunch seems to be that just because credit is available, doesn't mean that we have to take it.

In This Issue

In this issue of ReConnect Africa magazine, we take a look at the forthcoming Precious Awards and speak to Foluke Akinlose about her mission to celebrate women of colour in the UK.

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